To What Extent Top Managers' Compensation Impacts the Risk Aversion Phenomenon?

Abstract: Executive compensation and its issues are a very sensitive subject, to be taken with apinch of salt, but it is above all a fascinating subject, which deserves a more globalunderstanding from people. Our study thus aims to determine to what extent executivecompensation and its structure, which may seem complex at first glance, play a role inthe risk aversion of executives. Our study demonstrates that there are more predominantexternal factors than compensation that influence an executive's risk aversion.Previous literature contains and exposes a large theoretical framework in our researcharea about risk aversion, and some factors that could have consequences on it. However,it has never been estimated and conducted through the interviews of people that candescribe the phenomena they have to deal with on a daily basis: executives andCompensation & Benefits Specialists. The emphasis on the practical point of view theycould provide was a key point of our approach.This thesis was directed with a qualitative study to understand perception and explainingfactors on the value of risk aversion by top managers. The semi-interviews completedgave data from various points of view in terms of roles in the company, sector of activityor country of the firm. Established from our review of previous research, the interviewguide evoked seven main themes to enable us to answer our research question.Literature search permitted us to highlight how risk aversion could be seen as a parameterthat needed leverage from the principal, rooting on the agency theory and its solution,with the optimal contract. We identified factors that could impact the risk aversion ofmanagers on top of the executive compensation. These four factors: innovation,information sharing, temporality and external factors went under analysis, linkingprevious studies and our data to explain, evaluate and understand how they couldinfluence risk aversion.Our study brings a real added value to the previous research. Indeed, on the theoreticallevel, our study allows us to know that it is not compensation that has the most prominentleverage effect on the risk aversion of executives. Beyond this theoretical benefit that thisresearch brings, it also brings a practical benefit since it will allow the managers of listedcompanies to better understand the stakes of a compensation structure, in particular thatof risk aversion. It provides companies with the keys to conceptualizing a compensationstructure in accordance with their culture and long-term objectives.